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AN ANSWER 



Hon. JOHN WHIPPLE, OF RHODE ISLAND, 



JAMES GALLATIN, 



DELIVERED 



BEFORE THE BOARD OF CURRENCY, OF NEW YORK, 



ON WEDNESDAY EVENING-, FEBRUARY 2, 1859, 



HALL OF THE NEW YORK HISTORICAL SOCIETY; 



AN APPENDIX 



NEW YORK: 

WM. C. BRYANT «fe CO., PRINTERS, 41 NASSAU ST., COR. LIBERTY. 

1859. 



,G3 



ADDEESS. 



In the preface to an edition of Mr. "Whipple's pamphlet on 
the Usury Laws, published at Boston in 1857, will be found a 
letter of Hon. W. W. Wick, of Indiana, dated March 7, 1849. 
This letter states " That in Indiana, the Usury Laws were re- 
pealed twelve or fourteen years ago, (IS35, '36, '37.) Many 
(persons) were sold out of house and home ere public attention 
was called to the subject. * * * Had the Legislature not 
interfered and tied the hands of the spoiler, an immense amount 
of property would have changed hands in a few years."' We 
all know that, stimulated by the example of New York, (with- 
out duly considering the difference of position,) Indiana under- 
took the construction of the Wabash and Erie Canal ; it was 
necessary to borrow money for the purpose of building this 
canal, and the bonds of the State were issued. The land in the 
neighborhood of the canal rose immensely in value. The years 
1835 and 1836 were years of the wildest speculation and over- 
trading. The State of Indiana plunged heedlessly into internal 
improvement speculations. The banks expanded the currency, 
and when the reaction came, and a contraction could not be 
avoided, some of these institutions, loaded down with fictitious 
paper and dishonored State bonds, were immediately swept out 
of existence. The bank of Mr, Biddle, styled the Bank of the 
United States, after a year or two of vain struggles, broke down 
into hopeless bankruptcy. Not only many of the citizens of 
Indiana who had speculated wildly in lands became insolvent, 
but the State itself could not pay the interest on its bonds, and 
had to resort to temporary expedients in order to pay the 
salaries of its officers. JSTow, what does this detail of facts show? 
It shows in the clearest manner that that abyss of evils into 



2 

which Indiana was precipitated, is to be attributed, not to the 
repeal of the usury laws, but to a vicious administration of the 
government and a monstrous profusion of paper money. 

I must now beg of you to indulge me for a little, while I 
bring before you a similar state of things as those which existed 
in Indiana, in a State where the usury laws were never abolished, 
and where the legal rate of interest always remained at six per 
cent, per annum I mean the State of Kentucky. Let us recall 
to our minds the very memorable years 1818, '19, '20, and draw 
salutary and instructive inferences. Divination is forbidden to 
man, but experience is his privilege ; its lessons are to guide his 
conduct, and from what he has suffered he ought to guard 
again.-t what he has to fear. The case of Kentucky affords a re- 
markable illustration of the very obvious truths on which we 
have now been insisting. In the year 1818, forty-three new 
banks were chartered in that State. Thirty -five went into ope- 
ration ; their nominal capital was between seven and eight mil- 
lions of dollars, but their actual capital, what by making loans 
on their own bank stock, and similar devices, must have been 
very small ; paper money became very abundant. There was 
a great expansion of the currency ; prices advanced. This was 
very agreeable to the speculator; but in 1819 a contraction of 
the currency took place, which caused a pressure on the money 
market — reduced prices — paralyzed trade — brought about fail- 
ures. Some of these banks made for a short period a show of 
specie payments, then paid out notes redeemable in three hun- 
dred and sixty-five days after date ; but before the close of the 
year few of them paid anything. The State of Kentucky then 
adopted what is called the " relief system," stop-laws, stays of 
execution, &c. The judges of the courts, however, declared 
those laws unconstitutional. The Legislature established new 
courts, and judges were appointed friendly to the relief system. 
The people divided into two parties, and the contest was con- 
ducted with great violence In 1820, the friends of the old 
courts elected a majority of the members of the Legislature, 
and have ever since retained the ascendancy. All parties now 
admit that this relief system was the cause of great evil, as it 
tended to destroy the confidence of men in one another, and in 



the government ; for governments were established for the pro- 
tection of property, to insure and maintain the religious fulfil- 
ment of all engagements legally contracted. 



The pamphlet of Mr. Whipple, on the Usury Laws, demands 
our attention, from the importance of the subject, and from the 
claim made by the advocates of stringent usury laws, of his 
having treated the question with great ability ; moreover, his 
pretensions in the outset are of a nature to excite no inconsi- 
derable degree of expectation. He lays down the object of his 
treatise in the following words : " To make an attempt to re- 
move the prejudices which prevail (to a limited extent) among 
some men in trade, on account of the gross misrepresentations 
which have been made by Mr. Bentham, and others of his 
school, I am satisfied that most men have not given them- 
selves the trouble of investigating the true policy and design of 
those laws, nor the principle upon which they are founded." 
It is not my intention to attempt to demonstrate all the fal- 
lacies with which his treatise everywhere abounds. It cannot 
be considered as an investigation merely tinctured with doubt- 
ful or erroneous theory, but as a collection of positions, all of 
them either self-evident or obviously false, and founded on 
errors which the slightest attention is sufficient to detect. This 
is my fair and candid opinion, and I can scarcely doubt that it 
will also be that of every man who reads his pamphlet, with 
any reasonable knowledge of the subject. He has proceeded 
upon the common idea, that money is not the product of labor, 
" but is brought into existence solely by the action of govern- 
ment ;" that it has no inherent value of itself; that the stamp 
of the government upon it is not a certificate as to the quantity 
of pure silver or gold contained in each coin respectively, but 
merely makes it a representative or test of the value of other 
articles. 

Money, by which I mean the metallic currency — for bank 
paper is the creature of State governments, and is not recog- 
nised by the Constitution of the United States, which makes 
silver and gold alone a legal tender — performs several offices at. 



the same time. It is the security — the gage ; it is, moreover, 
the measure. As a sign, money represents all other kinds of 
wealth ; and, in passing it from hand to hand, we transfer a 
right to all other values. It is not money itself that the work- 
man wants, but the food, the clothing, the lodgement, of which 
it is the sign. It is not in exchange for money that the manu- 
facturer gives his goods, but for the raw material required for 
going on with his manufactory, and for such articles as he may 
want for his daily consumption, or his pleasures. It is not 
money that the capitalist lends to the merchant, but what the 
merchant thinks proper afterwards to purchase with this money ; 
for, as long as he keeps it by him, he derives no profit from it ; 
and it is only after the money is out of his hands, or that the 
sign is exchanged for the reality, that his principal produces. 
By an abuse of language, which has caused a great deal of con- 
fusion, and occasioned a great many errors, the words money 
and capital have become almost synonymous. Money, it is 
true, represents all other capitals, but it is the capital of no 
man ; it is always unproductive by its nature, and wealth only 
begins to increase when we part with it. Money is not only 
the sign of all other riches, but it is also the security, — the 
gage ; it not only represents wealth, but it is also wealth 
itself. It has been produced, like all other riches, by labor ; it 
has cost as much to procure it from the mine, in labor and ad- 
vances of various kinds, as it passes for. It furnishes to com- 
merce an expensive commodity ; because, purchased as all 
other riches are, it is the only kind of riches which does not 
increase by circulation, and is not destroyed by use. It passes, 
without alteration, from the hands of him who employs it for 
useful purposes, and of him who dissipates it for his pleasures. 
As its value has not been created arbitrarily, it cannot be de- 
stroyed arbitrarily. It may be sought after, according to the 
quantity there is in the market ; for gold and silver, whether 
in coined money or in bars, obeys the same laws that are com- 
mon to all other kinds of merchandise; their changeable value, 
or their price in products, depends on the quantity that there is 
in circulation compared with the demand for them. We are 
told by Say, that when, by the discovery of America, their 



quantity was increased tenfold, they did not fall in value to ten 
for one, but only to four for one, that this was owing to the in- 
creased demand for commercial purposes, and for the arts, and 
for luxuries, which took place at this period. — " On a sudden, 
throughout Europe, a great impulse was given to industry : a 
much greater amount of the merchandise that was used as 
money was wanted than heretofore. At the same time, the way 
to the East, by the Cape of Good Hope, was discovered, 
crowds flocked to these new countries ; their productions were 
sought after with avidity ; the Asiatics, however, wanted 
none of the products of Europe, and received nothing in 
exchange but the precious metals ; the trade with India 
absorbed an immense quantity ; nevertheless, the products 
of Europe multiplied, wealth increased in every direc- 
tion, pedlars became opulent merchants ; the fishermen 
of Holland could count among their number — millionaires. 
Rare goods, that until then had been reserved exclusively for 
princes, were available to the middle classes. Furniture be- 
came much more splendid and costly ; a large amount of silver 
and gold was converted into ornaments, plate, &c, and if the 
mines of America had not been discovered, there is no doubt 
that these metals would have been greatly enhanced in value, 
they would have doubled, trebled, perhaps quadrupled." What 
may we not, therefore, anticipate from the discovery of the 
gold of California and Australia, and the trade that is now 
opened to us with China and Japan ? 

Money, besides, is a common measure of value ; prior to its 
invention, it must have been extremely difficult to compare the 
value of a bag of wheat with a yard of cloth. Clothing is as 
necessary to man as food, but the means by which he obtained 
each of them seems scarcely susceptible of comparison ; money 
has furnished a common and unchangeable unity, to which 
everything else can now be referred. Mr. Whipple tells us 
that " government possesses the power of converting lead or 
rags or silks into a currency, and the moment that is done, the 
lead or rags or silks become money." This delusion has induced 
more than one government to convert rags into an irredeemable 
paper currency, and has caused the ruin of most of those coun- 



tries. Forgetting that it is "because the precious metals have 
an intrinsic value that they have become the standard of the 
value of every other commodity, and that paper having no in- 
trinsic, but only a nominal value, never can be the security, the 
gage ; nor, whatever its amount may be, acid anything directly 
to the national wealth. In using it we substitute a sign of no 
value for a sign which has an intrinsic value. The increase of 
paper, therefore, neither adds nor produces any wealth ; the 
multiplication of it can have no other effect than that of depre- 
ciating its nominal value. 

Mr. Whipple does not seem to have given a moment's atten- 
tion to the difference between money and capital. What 
private credit puts into circulation, is that portion of 
the products which, as they come into the possession of the 
consumer, are saved, economised by him, and placed in reserve, 
either from a love of accumulation, from a fear of poverty, or 
form a desire of having more comforts for himself and family. 
These savings are employed in two ways : first, when they fall 
into the hands of the prodigal and dissipated it only enables 
him to increase his expenditures, favors his ruin, and is as if 
nothing had been economised, as if everybody had spent all 
their income, all their proportion of the general products, and 
is therefore of no advantage to the community, and deserves 
neither consideration or favor ; second, when they get into the 
hands of the industrious and enterprizing, who employ them for 
useful purposes, and give occupation, and improve the con- 
dition of all classes of society, and thus become the true source, 
or rather the most powerful lever, of the prosperity and wealth 
of a nation ; the agent, the moving power which gives such 
great results, deserves all the attention and consideration of 
Government. Economy is very frequently confounded by the 
ignorant with avarice, but there is a wide difference between 
the frugal man and the miser ; it is true that both economise, 
that neither consume all the products of which they become 
possessed ; but the miser converts his savings into the precious 
metals wdiich he buries in the earth, and thenceforth they are 
of no use either to himself or others. While, on the other hand, 
the economist employs his, and divides the new products ac- 



quired therewith, with those to whom he furnishes the means 
of labor ; he thus renders himself as useful to his fellow-men as 
the miser is useless and injurious. One thing is certain, that 
without economy there would be no capitals, without capitals 
no improvement, no progress, no increase, no adequate compen. 
sation for labor, no resources for the unexpected necessities and 
wants of either private individuals or of nations. Thus no un- 
dertaking, no work in our present state of civilization, can now 
be accomplished, without capital to put it in motion ; but this 
capital, almost always represented by money, is nevertheless a 
very different thing. The increase of capital is the most power- 
ful encouragement to labor, but the increase of money has not 
essentially such an effect. Capital has a powerful influence in 
producing riches : it gives birth, if I may so use the expression, 
to an annual income, but money remains sterile, and produces 
no income. The competition between those who offer their 
capital to those who perform the annual labor of the country is 
the foundation of interest. The accumulated capitals may be 
loaned to the government, for the service of the country, but 
the money which is used for the purpose of transmitting it, is 
only the instrument of the contract, and has no influence in 
fixing the rate of the interest. The laborer cannot work unless 
those who have accumulated capital, that is to say, the products 
of former labor, furnish him with the means, the capital ; for he 
cannot labor without food and clothing. It is therefore impos- 
sible to pursue any branch of industry, to work, unless there is 
a pre-existent capital with which to purchase the necessary 
materials, and to pay the wages of the workmen ; and if the 
workman makes these advances himself, he appears in the 
double capacity of capitalist and laborer. As the laborer re- 
quires the capitalist, so does the capitalist stand in need of the 
laborer, for his capital would be unproductive if it remained 
unemployed. Increase the amount of money in a country, 
without increasing the capital, you add nothing to the prosperity 
of that country, nor do you produce any effect on the rate of 
interest, as is evident in California and all other mining coun- 
tries. Everything tends to show that the capitalist and the 
laborer are equally necessary to each other ; and hence, as has 



been most justly observed by one of our most distinguished 
writers on that subject, that " all attempts to excite the preju- 
dices of the poor against the rich, or of the rich against the 
poor, are no less injurious to the interests of both classes than 
they are criminal and detestable ; and that they most com- 
monly emanate from unprincipled men, who can rise to noto- 
riety in no other manner than by agitation, and who are will- 
ing to gratify their own lust of power at the sacrifice of the best 
interests of the community." 

I cannot conceive anything more loose, than Mr. "Whipple's 
mode of stating and answering arguments. He says : " If Mr. 
Bentham contends that thirty per cent, is intrinsically as proper 
as six, he does not agree with most other advocates of the free 
trade system," &c. He here does not state an opinion that any 
man ever maintained ; he fights with a creature of his own 
imagination, in order to defend a position clearly untenable, 
and which he could not have thought of holding, had he not 
been involved in a mist which has prevented him from ever 
getting a clear view of his subject. But, perhaps, he might be 
convinced of his oversight, if reminded, that he has himself, 
though inadvertently, stated, with sufficient precision, the doc- 
trine maintained by his adversaries. He tells us " that the 
owner of money, (by which he means capital,) prefers loaning 
it to men, and upon security well known to him. He may be 
willing to invest it in the stocks or lands of a foreign country, 
but very rarely does a capitalist send his money to a foreign 
country to loan to individuals. He has to encounter the double 
risk of the solvency of his agent, as well as that of the borrower. 
For many years money has commanded from twenty to thirty 
per cent, in many of the Western States, upon landed security, 
while it has been abundant in England and Holland at three 
and four," and again, " should the Government ordain that cer- 
tain peculiar shells should constitute the currency, and be a 
lawful tender in payment of debts, that currency would possess 
the same power, though probably not the same value, as gold 
and silver." It is by omitting the considerations of the "risk," 
which always, to a certain extent, governs the rate of interest, 
and which usury laws must necessarily increase, and the intrin- 
sic value of silver and gold, that in all the subsequent parts of 



his arguments Mr. "Whipple has fallen into his leading mistakes ; 
for his whole reasoning proceeds upon the neglect of the facts 
stated in the above quotations. 

"We now come to Mr. Whipple's peculiar theory, that an 
owner of the metallic currency of the country is not permitted 
to use it as he thinks proper, as he would merchandise ; he 
asks, " can an individual owner of a portion of the currency use 
it as he pleases, without regard to the object of its creation ?" 
He certainly can, and there is no lawyer among us who would 
not say that he has not both the legal and moral right so to do. 
He may lock it up in the vaults of a bank, and keep it there as 
long as he pleases ; he can have it melted down into ornaments 
or plate, and nobody will interfere with him. The actual mo- 
netary condition of a country cannot be affected by arbitrary 
laws ; government has no right to prevent the exportation or 
importation of the precious metals. These, like any other com- 
modity, if let alone, will regulate themselves ; suppose, as Mr. 
Whipple suggests, that forty or sixty capitalists should buy up all, 
or nearly all, the metallic currency of the country, which lie thinks 
they have the power of doing, the consequence would be, that 
there would be a scarcity of money ; the price of gold and silver 
would rise, for though you cannot purchase more wool, or but- 
cher's meat, or cotton, with a barrel of flour, you can purchase 
more wool, or meat, or cotton, with the money than heretofore 
was paid for a barrel of flour. But it is easy to see that inas- 
much as money prices are lower than any others ; that is, as 
specie retains its former value, in all other places, that it is only 
here that it is dearer and will purchase more than any other 
commodity ; other nations will send specie until the equilibrium 
is restored, and consequently the business of the country would 
not come to a stand, as Mr. Whipple apprehends. Besides, a 
man has the same absolute ownership over the silver and gold 
coin he may possess as he has over cotton or wool, or anything 
else ; and he has just the same right to make use of it, in any 
way he may think for his advantage. 

The metals were used as a circulating medium, on account of 

their intrinsic value, before they were fashioned into coin ; we 

find, in Genesis, xxiii, 16 : " And Abraham hearkened unto 

Ephron; and Abraham weighed to Ephron the silver which 

2 



10 

lie had named, in the audience of the sons of Heth, four hun- 
dred shekels of silver current money with the merchant." "We 
see that at this time the money was weighed ; that it was 
not paid by tale. Cattle were also used as a circulating medium 
on account of their value. We are told, by Homer, " That the 
armor of Diomecle cost nine oxen." Thus we find that in all 
ages of the world it was indispensable, that what was used 
amongst civilized nations for a circulating medium should have 
an intrinsic value, which cannot be conferred upon it by the 
power of any government. I do not, however, wish to be mis- 
understood ; we are told, and it is very true, that " The com- 
merce of the world, at its present state, could not be carried on 
with oxen as a circulating medium ; neither could it be, if we 
were obliged to exchange our gold and silver for the iron 
money of lycurgus ; it requires an article of high price, con- 
centrating within a small bulk a large amount of value, repre- 
senting a large amount of labor." " But there is a limit even 
to this. Precious stones are minerals, and they cost all the 
price at which they are sold ; they are, however, too dear to 
be used for this purpose." 

I have now to call your attention to a part of Mr. Whipple's 
pamphlet, to which I feel myself bound to advert, and yet 
approach it with a sense of pain ; but I know of no excuse 
which can palliate such a perversion of facts as will be found 
in the following extract : " Say informs us, that in ancient 
times the more severe the penalties, the higher were the rates ; 
but he furnishes no fact to justify his opinion. On the con- 
trary, the only fact he does state refutes the whole proposition. 
He says that letters patent are still extant authorizing the 
Jews to loan at eighty-six per cent, per annum. Here then, is 
the customary rate in that reign under the free trade system. 
There was no indemnity for the risk of violating ^the law, be- 
cause those rates were authorized by law. Previous to the 
reign of Henry YHI., the customary rates Avere forty per cent. 
The taking any interestfjwas then denominated usury. In the 
thirty-seven of Henry VIII. the rates were established at ten 
per cent. They were reduced from time to time until the reign 
of Anne, when they were established at five per cent., and so 
continue until the present day." Now, let us see if the above 



11 

fact is reported with accuracy ; let ns compare it with the ori- 
ginal. I extract the following] from J . B. Say's Pol. Economy, 
vol. II, page 99, translating it from the French : " It is thus 
when they attempted to limit the rate of interest, or abolish it 
entirely, that they have constantly revived usury. The natural 
result was, the more violent the threats, the more vigorously 
it was enforced, the higher was the rate of interest. The 
greater the risks to the lender, the more necessary was it that 
he should be compensated by a high premium of insurance. 
At Rome, during the whole time of the Republic, the interest 
for money was enormous. We would have divined this, if we 
had not known it, for the debtors, who were the plebians, were 
always threatening their creditors, who were the patricians. 
Mahomet has forbidden the lending at interest ; what has 
been the consequence in the Mussulman territories ? They loan 
at usurious rates; for of course the lender must be indemnified 
for the use of his capital, and at the same time for the risk of 
the infraction of the law. The same thing happened amongst 
Christians as long as the lending for interest was forbidden ; 
and when the necessity of borrowing made them tolerate it 
with the Jews, these were exposed to so many humiliations, 
outrages, extortions, sometimes under one pretext, and then 
under another, that a considerable interest was alone calculated 
to cover so many vexations and losses. Letters patent were 
granted by King John in the year 1360, authorizing the Jews to 
loan on pledge, and receive for each livre, or twenty sous, four 
deniers for interest per week, which makes more than eighty-six 
per cent, per annum / out, the following year, this prince, who 
nevertheless passes for one of the most faithful to his word that 
we have had, caused secretly the quantity of fine metal contain- 
ed in the money to be diminished, so that the lenders, when they 
were reimbursed, only received a value equal to what they had 
loaned.'''' It will be clear to all who have attended to the very 
able argument which I have just read, that Say shows conclu- 
sively, that the more severe the penalties were in ancient times, 
and the greater the risk, the higher was the rate of interest ; 
and that the risk of having the coin debased, a fact which Mr. 
Whipple keeps out of view, is sufficient to explain and to jus- 
tify the high rate of interest which the Jews demanded. Let 



12 

us now see how far the facts given by Mr. Whipple himself as 
to the establishment of the rate of interest in England are cor- 
rect. He states that "In the 37 Henry VIII., the rates were 
established at ten per cent. They were reduced from time to 
time, until the reign of Anne, when they were established at 
five per cent., and so continued until the present day." 

An Act of the 37 Henry VIII., A.D. 1545, (Statutes of the 
Eealm, 111, 996,) enacted that none should take [interest] above 
10 per cent, per annum : this act continued in force seven years, 
until 1st May, 1552, when it was repealed 5th and 6th Edward 
VI., (Statutes of the Realm, IV., 155,) and the former prohibi- 
tions re-enacted, making all interest usurious. The statute 5th 
and 6th Edward VI. remained the law of the land until A.D. 
1571, when it was repealed by the 13 Elizabeth (Statutes of the 
Realm, IV., 542) which recites that the said Act hath not done 
so much good as was hoped ; but rather that the vice of usury, 
and specially by way of sales of wares, and shifts of interest, 
hath more exceedingly abounded ; the limitation of the rate of 
interest was 10 per cent. This act was made perpetual on 18th 
same reign, A.D. 1576, (Statutes of the Realm, IV., 917.) You 
will perceive from the above, that the rates of interest were 
not only reduced from time to time, from 37 Henry VIIL, but 
that the prohibitions were under Edward VI. re-enacted, mak- 
ing all interest usurious, and that a rate of interest was not 
permanently established until the reign of Elizabeth. To this 
wonderful woman England was also indebted for the complete 
restoration of the coinage ; instead of debasing it as her prede- 
cessors had done, she restored its purity ; the debased money 
of her father and brother was recalled and melted ; there was 
received at the mint what passed current for above £638,000, 
its real value being only about £244,000, to such an extent had 
this nefarious and mischievous process been practised by the 
government. 

It is not my intention to trouble you with a long dissertation 
upon the causes that in various ages of the world have pro- 
duced a prejudice against the taking of interest; we must not, 
however, lose sight of the fact, that this prejudice extended 
to all profit received for the use of capital. The prohibitions 
by the Jewish law-givers extended only to the Jews themselves : 



13 

they were permitted to take what interest they pleased from 
strangers, and even if they had been more general, the parable 
of the talents : " Wherefore then gavest not thou my money 
into the bank, that at my coming I might have received mine 
own with usury ?" (St. Luke, xix. 23,) shows that usury was ac- 
tually enjoined by our Saviour. There is, however, no crime 
against which the fathers in their homilies declaim with more 
bitterness ; and which the church has uot pronounced against 
in the most peremptory and absolute manner, than the exacting 
of any kind of interest for the use of capital ; and she only now 
escapes from those opinions, which were fulminated in an igno- 
rant age, by subtilties that it is very difficult to comprehend. 
Like the reverend fathers Jesuits, who, after having translated, 
with commentaries, the Elements of Newton, feeling that this 
did not altogether 'coincide with Loyola, they took care to ap- 
prise the public, by an advertisement, that although in appear- 
ance they had demonstrated the movement of the earth, still 
they remained not the less submissive to the decrees of the 
Pope, who did not admit this movement. 

The people of antiquity, and of the middle ages, only 
knew and only employed one way of obtaining wealth, to 
increase their riches, and to retain the possession of them ; 
they placed their hopes, and their confidence, in the right of 
the strongest ; and to that purpose their institutions, their legis- 
lation, their manners, and their customs, were made subordin- 
ate. They proposed as their only object, a numerous popula- 
tion, courageous, skilled in the use of arms, and always ready 
to sacrifice their lives in conquering other nations and appro- 
priating to themselves their riches. The annals of all the cele- 
brated nations of antiquity show uniformly this historical fact. 

The Persians, first, then the Greeks, and Rome founded by 
thieves and fugitive slaves, who sought an asylum against the 
justice of the laws, subsisted for a long period on what they 
could pillage from their neighbors. Romulus was always at 
war for the purpose of obtaining women, citizens or territory. 
The riches accumulated at Rome by the pillage of Italy, of 
Gaul, of Spain, of Africa, and of the opulent provinces of Asia, 
became the exclusive patrimony of the patricians, and the 
cause of perpetual quarrels between them and the plebians ; 



u 

they gave to Julius Caesar the means of destroying the liberty, 
and of enslaving his country. The people of the middle ages 
offer us the same spectacle : when there was nothing left to be 
taken from strangers, they made war on one another. Fathers, 
children and brothers, the king and the barons, the suzerain 
and the peasant, went to war with each other for the purpose of 
increasing their riches. But these universal and constant hos- 
tilities produced misery and poverty, the forerunners of that 
revolution which caused the ruin of the feudal governments. 

But the sources of the riches of modern nations are totally 
different from those of antiquity and of the middle ages ; riches 
are now obtained by industry, labor, economy and commerce, 
and not by the spoils of conquered foes. All classes of men 
now accumulate wealth, the laborer and the mechanic who 
place their little economies in our saving banks, as well as the 
merchant and the professional man. The laborer and mechanic 
are, however, prevented by our usury laws from obtaining the 
amount of interest they are justly entitled to ; but when by 
sickness or other untoward events they are reduced to the ne- 
cessity of borrowing on pledge, they are compelled to pay enor- 
mous rates of interest. 

Mr. Whipple says : " Let us pause, at least, before we reverse 
the verdict of universal mankind." When Copernicus and 
Galileo taught for the first time that the sun, although we see it 
every morning rise in the east, ascend over our heads at noon- 
day, at night descend towards the west, did not nevertheless 
move from its place ; they, also, had opposed to them the uni- 
versal prejudices of mankind, the opinion of antiquity and the 
evidence of their senses. Ought they, therefore, to have re- 
nounced what was demonstrated to them ? Hasty or ill advised 
experiments should not be adopted, or airy and unsubstantial 
theories pursued ; but, nevertheless, the application of sound 
and wholesome knowledge to practical affairs should not be re- 
jected; and advances towards improvement when founded in 
truth, should be pressed, although opposed by those who, inca- 
pable of comprehending, resist indiscriminately all reforms as 
innovations. 

Mr. Whipple informs us, that " the truth is, that literary men 
of all ages have had some predominant hobby. At one time 



15 

the science of astrology ruled mankind. Next comes meta- 
physics, which employed the pens of the ablest men of its age. 
That science is now generally agreed to deal pretty much in 
moonshine, and has gone with its fellow science of astrology to 
the tomb of the Capulets. Next came political economy, which 
had its day, though a brief one." I envy not the feelings of that 
man who cannot take a laudable pride in every progress made 
in science, letters and arts, in all that constitutes an advanced 
state of civilization. As well might he liken Franklin and Jef- 
ferson to Robespierre and Marat, Washington and Bolivar to 
Julius Caesar and Bonaparte, as to assimilate Jeremy Bentham 
and Ricardo to Bishop Berkeley and Cardano. 

I will now recur to the prodigious effect produced by the 
writings of Ricardo ; no man since Peter the Hermit and the 
days of Luther and Calvin has effected so much: with an in- 
telligence never exceeded, and rarely equalled, he clearly de- 
monstrated the iniquity, the folly and the injustice of usury 
Jaws. I will not fatigue } t ou, gentlemen, by an unnecessary 
repetition of his arguments ; his splendid exertions you are all 
aware were crowned with complete success. The usury laws, a 
relic of barbarous times, have been abolished in nearly all the 
nations of Europe. 

I do sincerely believe, that these absurd laws will soon be 
repealed in America. I rely for this on the intelligence of the 
people. The United States is looked up to as the only truly 
free country on the face of the globe. Their example furnishes 
a salutary lesson to the rest of the world. Their progress, due 
to political, religious and civil liberty, stands unparalleled in 
the annals of mankind, and they cannot afford long to be 
in arrear of other nations in the progress of useful improve- 
ment. 



APPENDIX 
A. 

(Extract from the Report on the Currency, in reference to the Usury 

Laws.) 

" One of our most profound political economists having examined and 
discused the operation of these laws in their various relationships — moral, 
social, economical and political — remarks, ' that the usury laws, so far as 
they operate, have a tendency to check that salutary division of labor so 
essential to the prosperity of every community — to throw a clog on the 
great wheel of commerce.' A.nd as to agriculture, his condemnation of 
these laws, he asserts, ' is in perfect harmony with that interest.' The 
farmer, no less than the mechanic, the manufacturer and the merchant, 
suffers from the usury laws. The unrestricted use of money accelerates, 
while usury laws retard, the progressive development and general diffu- 
sion of wealth in a community, a state, or a nation." 

It has been remarked by Ricardo, that the true rate of interest depends 
altogether upon the " rate of profits which can be made by the employ- 
ment of capital." If it be fixed at a certain rate by law in seasons of pres- 
sure for money, the banks are unable to deal directly with those who are 
really in want of money, because on the first appearance of pressure the 
persons who hold money in banks, or who have superior influence with the 
banks, get possession of all the money in the market, (and many of these) 
lend it out at second hand, for much higher than the law permits the 
banks to take * * * In this way our usury laws defeat those just and 
salutary benefits which our people have a right to look for, and to calculate 
upon finding in the business of banking as it should be conducted. * * 
If the rate of interest were not trammelled by legal restraints, it would be- 
come to every man having use for money, either as borrower, or lender, 
what the barometer is to the mariner, a guide by which to regulate his 
occupation, telling him when to spread or take in sail, when to contract or 
expand. By watching the rise and fall in the rate of interest, every man 
engaged in active business would be enabled to gain a correct knowledge, 
which is now possessed exclusively by a few of the shrewdest of our bank 
managers. * * * Among the phenomena of the late revulsion, there 
was an evidence of the dangers which menace us financially so long as our 



17 



usury laws continue in force. When the great powers of Europe engaged 
in war, the rate of interest began to increase, and in the liquidation of the 
expenses of that war it arose to a very high rate. Every influence which 
could draw money from other countries was put into operation. New York 
being the principal point on this continent at which capital centres, became 
exposed for a long period, even after the war had terminated, to a system 
of depletion which taxed the financial resources of the whole country, and 
which finally precipitated to some extent the impending collapse. * * * 
Experience having thus demonstrated that as in Europe they are un- 
shackled by usury laws, we are exposed in great emergencies to sudden 
and powerful drafts upon our capital, one of the principal means for our 
safety in the future is to be found in the repeal of these laws. But we 
must submit to the loss of our capital so long as our usury laws exist, 
whenever Europe pleases to bid higher for money than these laws permit 
us to give ; and the United States will continue to be used as a great reser- 
voir of money, to be drained at pleasure by the governments and people 
of other nations. 



APPENDIX 

B. 

By request of the Young Men's Association of the City of Albany, Mr. 
Gallatin delivered the foregoing address in the Assembly Chamber of the 
New York Legislature on the 2d March, 1859, when he took occasion to 
make the following remarks on the currency : 

The framers of the General Banking Law of the State of New York, 
deeply impressed with the dangers of an unrestrained and unsecured emis- 
sion of paper money, so fatal in its influence on prices, so distressing in its 
effects on the laboring classes, and so subversive of those principles of se- 
curity to property, which are the foundation of all civil society, have, in 
order to remedy the evil, required the deposit of stocks, and bonds and 
mortgages, with the Superintendent of the Banking Department, as a se- 
curity for the circulating bank notes ; these securities, though many of 
them are unavailable in times of great commercial pressure, secure the ul- 
timate payment of the notes. Some good has been achieved by this. But 
experience has shown that this is not sufficient to prevent an expansion of 
the currency, which leads to over-trading, till over- trading again forces a con- 
traction, thus producing those alternations of extravagant excitement, and 
of fearful depression, which this country has so often experienced of late 
years. The deposits, or cash credits on the books of a bank, whether made 
in specie, or bank notes, or arising from a note discounted by the bank, or 
from the collection of individual notes, or bills of exchange, are liabilities 
of the bank, payable on demand like bank notes in specie. The bank notes 
and deposits rest precisely on the same basis, for immediate payment on 
the amount of specie in the vaults. Bank notes, and bank credits, or de- 
posits, are convertible into each other at the pleasure of the possessor. We 
can in no respect whatever perceive the slightest difference between the 
two ; and the aggregate amount of credits payable on demand standing on 
the books of the several banks, we cannot but consider, therefore, as beiug 
part of the currency of the United States. Merchants rely for the fulfil- 
ment of their engagements on theirown resources ; banks, not only on their 



19 

own resources, but also on the probability that their creditors will not re- 
quire payment of their demands ; this probability is always increased or 
lessened, in proportion as the liabilities of the bank are moderate or very 
great. The only efficient mode, therefore, of restricting the banks is in the 
amount of their loans and discounts, in reference to the capital actually 
paid in, and in requiring them at the same time to have in their vaults a 
certain ratio of specie as compared to their immediate liabilities; (this ex- 
clusive of their circulating notes, as they have lodged security for their 
payment.) The efficiency of the first provision depends entirely on the re- 
striction of the maximum of loans and discounts. It is the opinion of those, 
the best informed on the subject, that no bank should be permitted to ex- 
tend its loans, including stocks, and every species of debt, beyond twice 
the amount of its capital. By the law of the State of Louisiana, no 
bank is permitted to let its specie at any time fall below 33^ per cent, of 
its immediate liabilities. I cannot, therefore, believe that any valid objec- 
tion can be made to a restriction of 25 percent. The excessive and fatal 
expansions of the years 1836-37, and those of 1857, could not have taken 
place, had the maximum of loans and discounts been properly regulated ; 
and the banks at the same time been compelled to keep a fixed ratio of 
coin as compared to their immediate liabilities. The banks of Louisiana, 
where they are so restrained by law, did not suspend specie payments in 
1857. The Governor of the State of New York and the Superintendent of 
the Banking Department, both urged, in their communications to the Le- 
gislature in January, 1858, the passage of an act fixing a minimum of 
specie. And certain banks of the city of New York, members of the 
Clearing House Association, at the commencement of the same year, feel- 
ing the necessity of having a restraint upon the discount lines of the banks, 
agreed among themselves to keep at all times 20 per cent, of their net 
deposits in coin in their vaults. This is too small an amount ; and expe- 
rience has also shown that several of the banks do not consider this agree- 
ment as binding upon them ; and when there shall arise any considerable 
demand for specie, growing out of an unfavorable state of the foreign ex- 
changes, or from any other cause, it will be found that nothing but a legal 
enactment, strictly enforced, will have the desired effect. Also, at a meet- 
ing of the said association held in March, 1858, it was proposed to enter 
into an agreement, if all concurred therein, not to allow interest on deposits 
or balances of any kind. Because, as it was asserted, " a bank having 
committed the first error of paying interest on deposits, is therefore com- 
pelled, by the necessities of its position, to take the second false step and 
expand its operations beyond all prudent bounds." Forty of the forty-six 
banks who composed the association signed this agreement ; three ex- 



20 

pressed their willingness to sign it, but the three remaining refused abso- 
lutely their assent, and the agreement was not consummated. Let it not, 
however, be supposed, that I state these facts to serve as an apology for 
myself, and for those who think and act with me ; the measures of reform 
that we propose require no apology. I believe now, as I always believed, 
that they are calculated to promote the best interests of the people ; and 
that those who either by their action in the Legislature, or the exertions of 
their talents out of it, may contribute to remove the defects existing in our 
monetary system, will have done themselves the greatest honor, and the 
country an essential benefit. 

The suspension of specie payments in 1837, was felt in New York as a 
great calamity. We learn " that a small but determined party " viewed 
the suspension in its true light, — a state of disgrace and reproach, in which 
there could be no wholesome revival of trade, and not to be tolerated 
beyond the year granted by the Legislature. New York resumed trium- 
phantly in May, 1838. In 1857, the banks of the city of New York, 
with a specie reserve of only twelve millions, loaned out $122,000,000 ; 
although at the time the foreign exchanges were unfavorable to the 
country. They speedily saw their error, and in September of that year, 
by a rapid contraction, endeavored to turn the exchanges ; in this they 
succeeded, but were in October forced to suspend specie payments, in the 
midst of a violent panic. The occurrence was looked upon, as twenty 
years before, as a national calamity ; and the banks immediately adopted, 
unanimously, a resolution in favor of the earliest possible resumption. But 
within a few days there were symptoms of the same opposition to resuming 
specie payments that had been manifested in 1837. This time, howewer, 
the advocates of a prolonged suspension and iuflation were within oar own 
State ; in 1837, they were in other States. But the movement for resump- 
tion was vigorously sustained by the more conservative banks ; and they 
could have resumed in ten days after the suspension, as in consequence of 
the previous contraction all the exchanges had become favorable, and coin 
came pouring in from all quarters ; indeed, the day after the suspension 
$100,000 in specie was brought into the National Bank, to be exchanged 
for the bills of that bank — this, however, was refused. But it was de- 
sirable that the whole State should resume simultaneously with the city, 
and the volume of paper money of the country banks there was fortunately 
small enough to enable the city banks to take it up ; this delayed the 
resumption sixty days — but it was highly beneficial to the credit of the 
State ; for if the stocks lodged with the bank department had continued to 
be thrown on the market, they would have fallen still more in value : as it 
was, they fell nearly twenty-five per cent. The speedy resumption and 



21 

beneficial result have vindicated the wisdom of that measure, and those 
who were opposed to it now frankly confess that " time has shown it to 
be a substantial and permanent resumption." We had conceived that 
there could be but one sentiment in reference to the suspension and 
resumption of 1857 : that there could exist no other than a feeling of 
sympathy and the greatest pain for the distress which then unfortunately 
existed throughout the State ; thousands reduced to the greatest misery 
by the ruin of trade ; fifty thousand working people thrown out of em- 
ployment in the city of New York alone ; the excruciating torments of the 
mind experienced by all classes of the community ; do not these prove by 
their said memories, that some remedy is required, some checks and 
reforms needed ? And here I cannot but express my astonishment that a 
gentleman for whom I have the highest regard — whose sincerity I cannot 
doubt — but whose judgment, in this respect, seems to be most unaccount- 
ably perverted, expresses the opinion " that the late suspension and re- 
sumption have simply brought out into bold relief the perfection of our 
free bank system in its connection with our currency." 

May I now venture to intrude upon you an allusion to my personal feel- 
ings? Those who acted with me, as well as myself, were, in 1857, assailed 
and distressed by ungenerous appeals to our feelings ? We were asked how 
we could, under existing circumstances, advocate and endeavor to enforce 
a speedy return to specie payments — persevere in this trial of a rash expe- 
riment, and in the pursuit of a hollow theory. Believing that the banks 
were bound by the strongest legal and moral obligations to resume specie 
payments whenever they were able to maintain such payments ; that 
" there could be no wholesome, sound trade under a depreciated currency," 
and that a restoration could as easily be effected in two months as two 
years, these appeals, however painful to receive, had no influence on our 
conduct. We had a duty to perform. Immediate relief was then, in a 
great degree, out of our power, and it the more becomes us now to trace 
the calamities with which we were then afflicted, and to endeavor to pre- 
vent their occurrence. It is on this principle that I am anxious that all 
necessary checks and reforms should be applied to our monetary system — 
a system which, if let alone, will again lead to ruinous fluctuations in trade, 
and in prices of all commodities ; a system which alike undermines the 
sober habits and the moral feelings of the community ; which injures the 
poor man in the earnings of his labor, and takes from the rich man all se- 
curity in his property, and which every succeeding convulsion must add to 
our inability to bear it. 



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